Q: The terms Revenue and Income are often used in reporting earnings. What is the difference? — Audrey W.
A: Revenue (sometimes called sales) refers to all the money a company takes in from doing what it does — whether making goods or providing services. Other sources of funds — including investment gains — are usually labeled as such but also included as revenue. (Occasionally, you’ll see this number referred to as “gross income.”)
“Net income” is the phrase commonly used to refer to a company’s “profit.” It represents how much money the company has left over, if any, after it’s paid the costs of doing business — payroll, raw materials, taxes, interest on loans, etc..
The real issue is what goes into that income number. There are many flavors: “income from continuing operations,” for example, includes profits made this year from the same businesses, plans, and services that were around a year ago. (Operations that were sold or closed are excluded, on the theory that they won’t generate any more money for investors.) Some people like to look at EBITDA-a gobbledygook Wall Street phrase that means earnings before interest, taxes, depreciation and amortization. In other words, income before those costs have been subtracted.
Over time, companies began to exclude all sorts of things from their “operating income” — with the effect of artificially inflating the profits they reported. When a company pays stock options to executives, for example, those don’t count as “costs” — even though many analysts and accountants think they should.
About the best you can do is try to compare apples to apples — from one quarter to the next, or one company to another. But even that takes a bit of digging.
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